Novartis Q4 profit slumps nearly 27% as sales take a hit

SINGAPORE--Swiss-based Novartis ($NVS) reported a nearly 27% drop in fourth-quarter profit on Tuesday as lower-than-expected sales hit the bottom line.

Net profit fell to $1.49 billion, well below the $2.83 billion expected and compared with $2.03 billion in the same quarter a year earlier, the company said in a Jan. 27 earnings release. Sales reached $14.63 billion in the fourth quarter, missing analyst estimates of around $14.7 billion.

However, full-year net income rose 12% (+19% cc) to $10.3 billion, the company said, with net sales seen up in mid-single digits in constant currency in 2015 if the $25 billion deal that gave GlaxoSmithKline's ($GSK) cancer portfolio to Novartis in exchange for the latter's vaccines business concludes as planned by the end of the first quarter.

Constant currency (cc) strips out the effect of foreign-exchange rate fluctuations. Full-year net sales increased 1% (+3% cc) to $58.0 billion.

For the first quarter of 2015, the company expects an exceptional pretax gain of $4.6 billion as the result of its divestment of its Animal Health Division to Eli Lilly ($LLY) for approximately $5.4 billion.

The company also noted that the impact of the stronger Swiss franc is a factor going forward, but said the overall the currency impact is more closely linked to dollar strength. For the full year 2015, the impact is forecast at down 7 percentage points on net sales and down 12 percentage points on core operating income from continuing operations.

"This currency impact results from the significant strengthening of the U.S. dollar against most currencies, especially during the fourth quarter of 2014," the company said in the Jan. 27 earnings release.

"Compared to our expectations at the beginning of 2015, the mid-January appreciation of the Swiss franc has worsened the expected currency impact on core operating income by 4 percentage points (included in the -12 percentage points) as Switzerland represents about 13% of our operating expenses. This appreciation has a minor impact on net sales, since Novartis only generates about 2% of its net sales in Swiss francs."

Last year "was a transformational year for Novartis," CEO Joe Jimenez said in the statement. There were no details in the release on sales figures for off-patent blood pressure pill Diovan, which had a breather on trouble by Ranbaxy Laboratories faced in meeting U.S. FDA manufacturing quality standards.

- here's the release